South Africa introduced tougher rules for crypto traders – and it’s causing headaches


Crypto assets continue to be of concern to governments and regulators around the world, as their novelty, diversity and accessibility have subjected them to scrutiny by tax authorities, while their volatility has opened investors to susceptibility. .

The National Treasury recently released a report assessing South Africa’s anti-money laundering and terrorist financing measures.

The report, a combined effort of the Financial Action Task Force (FATF) and the East and Southern Africa Anti-Money Laundering Group, found that South Africa has major gaps in the regulation of crypto assets, particularly crypto asset service providers (CASPs).

Why regulate the crypto space?

Crypto regulation is not a popular concept among investors, said Thomas Lobban, legal manager of crypto-asset taxation at Tax Consulting SA. “While anonymity and freedom always inform the attractiveness of cryptocurrencies, these volatile assets have been proven to require regulation,” he said.

“This is not just for the general good of the economy and the tax authorities, but to protect people from the dangers associated with crypto investments.”

Although many scams have been reported, it was MTI Holdings that dealt the first blow to the credibility of crypto in South Africa, Lobban said.

“With its CEO still missing and the FBI assisting in the investigation, it is speculated that MTI Holdings and its executive management seized R8 billion.

“The next blow came in April when the Cajee brothers of Africrypt, a Durban-based cryptocurrency trading platform, disappeared with an estimated R50 billion in Bitcoin. They remain free.

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The shockwaves of these scams have renewed the urgency of a regulatory framework covering crypto-asset platforms, although its implementation is slow and seems somewhat misguided, Lobban said.

Slowness leads to overreaction

Standard Bank recently issued account closure notices to crypto trading platforms that offer arbitrage services. Crypto arbitrage involves buying digital assets in one jurisdiction at a low price and then selling them in another jurisdiction at a higher price, exploiting price differentials between markets.

The Reserve Bank of South Africa is also rumored to be stepping up the pressure by forcing banks to over-regulate the crypto asset space, Lobban said.

“This exercise comes after the announcement that the SARB has blocked purchases of crypto by debit and credit card from offshore exchanges. At first glance, this appears to be a firm step, though uncertain whether it is going in the right direction, towards regulating crypto from a currency control perspective.

“The Reserve Bank seems unable to explain the rationale behind the publication (and implementation) of this restriction without making changes to the current regulations.”

Tax Consulting South Africa said it contacted SARB for clarification on why offshore crypto purchases from debit or credit cards would be blocked.

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“Their response was that South Africans could still buy from local PSAPs with credit or debit cards, but not from offshore PSAPs,” Lobban said.

In email correspondence, the SARB representative responded by citing B.16 (A) of the Currency and Exchange Manual for Authorized Resellers (CEMAD), which states that transactions using credit cards and / or flow rates are authorized, subject to the provisions mentioned in subsections (D) and (E). Section B.16 (D) (i) only applies to South Africans going on a “trip” which means you can slide while traveling.

Section B.16 (E) (i) allows small foreign currency transactions on the internet, which means you can swipe online, but you cannot buy a Spanish villa through a card transaction. There is no mention of crypto in these regulations.

However, they included the following: “It should be noted that the purchase of crypto assets from a foreign crypto asset service provider (CASP) does not fall within the scope of section B.16 (E) (i) of CEMAD ‘.

“There was no explanation as to why this would not be allowed, which raises questions about the purpose of this restriction,” Lobban said.

FinSurv further issued a warning that it is a criminal offense to transfer crypto from South Africa to another country, according to the FAQ on the SARB website. This creates a lot of confusion among investors.

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The art of confusion

Crypto assets are transactions reflected in a distributed ledger (without borders). They are rarely held in a single jurisdiction at any one time – unless they are kept in a cold store or in a similar format, Lobban pointed out.

“It has not yet been clarified when exactly a crypto asset is in South Africa or another jurisdiction. Therefore, it is impossible for crypto investors to properly understand whether they are complying with the law in many cases. The SARB seems comfortable leaving investors in this uncertain state of mind.

“The dominant theme is that the government is seeking to suppress or restrict foreign investment in cryptoassets by South Africans, instead of first trying to understand it and educate those who are actively trading.

When asked for further clarification or a legal reference as the country’s monetary authority, the SARB seems unable to clarify how some of its policy decisions fit into current regulations, Lobban said.

“No action has been taken to address the concerns of South African investors in crypto assets, let alone the uncertainties they outline for PSAPs.

“Until more clarity is provided by regulators, crypto investors should aim to stay abreast of changes in the regulatory landscape.”

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